A mortgage refinance, or what’s commonly termed a debt consolidation loan, is the most straight forward of all your debt relief options.
In truth, if you have good credit, you own a home, you have equity in your home, consolidation may be the best alternative.
That’s because you get a low-interest rate and a real low monthly payment. Also, the interest is tax deductible, so the effective cost is a lot lower.
So what exactly does debt consolidation entail? Well basically you take all your existing debt such as your credit cards, your medical bills, etc and pay them off through the process of refinancing your existing mortgage.
You pay off all of those debts out of escrow. And then you end up with a larger mortgage balance. But now it is one payment and lower than the payment all your previous bills added up to.
Let me stress again this has a much lower interest rate and a much lower monthly payment compared to what you had before.
For most people, this method is usually is a lot more effective use of your capital. The only real challenge these days is actually qualifying for your refinance!
You’ve got to have excellent credit to qualify for this type of loan. Usually you need to have typically 20% equity in your home, or less than 80% loan to value.
Also, your debt to income ratio really needs to be very good. And then you have got to figure out from lenders what the best rate is and if it’s a good fit for you.
But if you qualify, it’s definitely the first and likely best choice to get fast debt relief so you should check this option out first before looking into any other methods to get out of debt.